State Heat Pump Incentives Get a Major Boost in the Inflation Reduction Act

Yesterday President Biden signed the Inflation Reduction Act (IRA), a tax, drug-pricing, and climate change bill passed through the reconciliation process. One of the components of the IRA is the newly created High-efficiency Electric Home Rebate Program which provides state energy offices with funds to give low and medium-income homeowners and landlords a rebate of up to $8,000 on qualifying changeovers to heat pumps and additional rebates to upgrade electrical panels, ventilation, and home wiring. While $4.3 billion has been appropriated for the rebate program, it will be up to individual states to make the rebate available to residents and potentially write additional requirements and limitations.

The rebate is designed to increase the use of electric appliances in new and existing homes by encouraging the replacement of gas appliances with heat pumps and electric appliances. The rebate is limited by the appliance type and income of the homeowner or tenants with a total maximum rebate of $14,000. Each of the following appliances and upgrades is eligible for rebates if it is certified by the Energy Star program:

• Heat pump for space heating or cooling: $8,000

• Heat pump water heater: $1,750

• Electric stove, cooktop, range, or oven: $840

• Electric heat pump clothes dryer: $840

• Electric load service center upgrades: $4,000

• Insulation, air sealing, and ventilation: $1,600

• Electric wiring: $2,500

In addition to individual rebate limitations for each appliance, the rebate is also limited based on the income of the homeowner/tenant. The threshold for income is based on the median income for the area in which the person/family lives and the number of persons in the family. The income thresholds by state and metropolitan area can be found here:

• Homeowners/tenants earning more than 80% of the median area income threshold but less than 150% can get a rebate of up to 50% of the cost of the full electrification project, limited to the above rebates.

• Homeowners/tenants earning less than 80% of the median area income can get a rebate of 100% of the project cost, limited to the above rebates.

Owners of multi-family housing are eligible to fully retrofit the facility if more than 50% of residents meet the median area income test, however, clarification is needed on how the $14,000 maximum rebate is applied to the full building or per unit basis:

• If more than half of the residents earn more than 80% of the median area income but less than 150%, the building owner can get a rebate of up to 50% of the cost of the project, subject to the above rebates.

• If more than half of residents earn less than 80% of the median area income, the building owner can get a rebate of up to 100% of the cost of the project, subject to the above rebates.

Electrification projects are limited to:

• New construction,

• Replacement of a nonelectric appliance (currently would not be allowed as replacement of electric resistance heating system), or

• First time purchase of that appliance.

Unfortunately, because the bill was written quickly, there are some unknowns that will require the Department of Energy to write regulations to clarify including the maximum rebate amount available for retrofits to entire multi-family housing facilities, ensuring single replacement of a tenant’s heat pump qualifies under the commercial replacement on an entity’s behalf qualifies, and how income tests will apply to new construction of multi-family housing.

This new rebate program is on top of state efforts to promote heat pump installation and tax credits also offered through the IRA. The following states encourage heat pump installation currently and will likely participate in the program:

• Alaska

• California

• Colorado

• Connecticut

• District of Columbia

• Illinois

• Maine

• Maryland

• Massachusetts

• Minnesota

• New Jersey

• New York

• Rhode Island

• Vermont

• Wisconsin

The following states discourage allowing utilities to implement fuel-switching programs and might not implement this rebate program:

• Arizona

• Arkansas

• Kansas

• Louisiana

• Michigan

• Oklahoma

• Oregon

• Pennsylvania

• South Carolina

• Texas

• Virginia

• Washington

• West Virginia

A full list of states’ fuel switching policies is available here from ACEEE.

HARDI will continue to work with the National Association of State Energy Officials on heat pump programs and with the Department of Energy on guidance for states implementing the rebate program.

If you have any questions, feel free to reach out to Alex Ayers (aayers@hardinet.org).